ADMA Biologics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
ADMA Biologics is a vertically integrated biopharmaceutical company developing, manufacturing and marketing plasma-derived biologics for primary immune deficiency disease and certain infectious diseases. Its marketed products include Nabi-HB and BIVIGAM; RI-002 is the lead pipeline candidate.
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2018, compared with the corresponding 2017 periods. Results include the Biotest assets acquired on June 6, 2017, making year-over-year comparisons not fully comparable.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2018 | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2018 | Six Months Ended June 30, 2017 |
|---|---|---|---|---|
| Total revenue | $4.7 million | $3.4 million | $8.7 million | $6.0 million |
| Operating loss | $(13.4) million | $(8.4) million | $(29.9) million | $(14.3) million |
| Net loss | $(14.7) million | $(9.0) million | $(32.6) million | $(15.6) million |
| Loss per share | $(0.35) | $(0.55) | $(0.74) | $(1.06) |
| Cash flow from operations | Not provided for the quarter | Not provided for the quarter | $(31.3) million | $(14.2) million |
- Six-month revenue increased approximately 44%; quarterly revenue increased approximately 37%.
- Six-month gross loss was $13.2 million, compared with gross profit of $0.1 million in the prior-year period. Quarterly gross loss was $5.0 million versus $0.9 million.
- Approximate six-month operating margin was negative 344%, compared with negative 238% in 2017; quarterly operating margin was negative 288%, compared with negative 247%.
- At June 30, 2018, cash and cash equivalents were $55.2 million, working capital was $66.7 million, total assets were $117.8 million and stockholders’ equity was $51.8 million.
- Cash, including restricted cash, was $59.2 million at June 30, 2018, compared with $25.6 million at June 30, 2017.
- Total liabilities were $66.0 million, including $25.9 million of senior notes, a $2.8 million end-of-term liability, $14.9 million of related-party debt and a $12.6 million obligation to transfer assets under the purchase agreement.
- The senior secured term loan has a $30.0 million principal balance, matures April 10, 2022, and bore interest of approximately 11.0% to 11.8% during the first six months of 2018. Up to an additional $10.0 million may be available subject to conditions.
Material Changes Versus the Prior Comparable Period
- Revenue growth primarily reflected contributions from the acquired Biotest assets, including Nabi-HB and contract-related revenue, partially offset by lower plasma-center revenue caused by increased competition and reduced donor collections.
- Cost of product revenue increased by $15.9 million for the six months, driven by $10.3 million of additional unabsorbed Boca Facility manufacturing costs, $2.9 million for RI-002 conformance lots, $1.1 million for BIVIGAM production and higher Nabi-HB costs.
- Warning Letter remediation expenses were approximately $0.5 million for the quarter and $1.3 million for the six-month period.
- Research and development expense increased modestly to $2.8 million for the six months, while plasma-center operating expense increased to $3.6 million following the opening of a third center.
- SG&A increased to $10.0 million for the six months, principally due to higher personnel, professional, facility, insurance and marketing costs, partly offset by nonrecurring 2017 Biotest transaction costs.
- Interest expense increased to $2.7 million from $1.3 million because of higher debt balances and interest rates.
- In June 2018, the company completed an underwritten offering of 9.6 million common shares for net proceeds of $42.9 million. Shares outstanding increased to 46.3 million at June 30, 2018.
- In May 2018, 8.6 million non-voting shares previously held by Biotest were transferred to ADMA and retired.
Guidance, Outlook, Risks and Unusual Items
- The FDA accepted the BIVIGAM Prior Approval Supplement for review in July 2018, with a target action date of October 25, 2018. Management expected a BIVIGAM relaunch before or during the first quarter of 2019, subject to FDA approval, manufacturing capacity and other requirements.
- Following an April 2018 FDA compliance inspection that management stated was successfully closed out, the company expected to resubmit the RI-002 BLA in the second half of 2018. Initial RI-002 commercial sales were not expected before the first half of 2019 and remain subject to FDA approval.
- Management expected FDA licensure of the third plasma collection center in the second half or fourth quarter of 2018. Two existing plasma centers were scheduled to transfer to Biotest on January 1, 2019 under the acquisition agreement.
- The company estimated that cash, projected revenue and receivables, and the expected availability of the additional $10.0 million under its credit facility would fund operations into the second quarter of 2019. It stated that additional capital would be required before the end of that quarter to continue as a going concern.
- The filing explicitly states that substantial doubt exists regarding the company’s ability to continue as a going concern. No firm commitment for additional financing existed at the filing date.
- The company expects continued losses and negative operating cash flow. Planned capital expenditures were estimated at $2.0 million to $4.0 million for the remainder of 2018.
- BIVIGAM and RI-002 production costs of approximately $1.1 million and $2.8 million, respectively, were expensed rather than capitalized because commercial availability depended on regulatory approvals.
- Customer concentration was significant: three customers represented 90% of six-month revenue, with BPC at 55%, AmerisourceBergen at 21% and McKesson at 14%.
- Key risks include FDA remediation and approval delays, manufacturing and plasma supply constraints, dependence on third-party vendors and customers, high operating cash burn, potential financing dilution, debt covenant or acceleration risk, and the scheduled transfer of two plasma centers.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded that disclosure controls were effective as of June 30, 2018.
Important Facts for Investors to Verify
- Whether the FDA approved the BIVIGAM PAS and whether BIVIGAM was successfully relaunched by the projected first-quarter 2019 timeframe.
- Whether the RI-002 BLA was resubmitted and subsequently approved, and whether the expected commercial launch timing changed.
- The company’s actual cash burn, financing activity and ability to obtain capital before the projected second-quarter 2019 funding requirement.
- Whether the third plasma center received FDA licensure and whether the two existing centers were transferred to Biotest as scheduled.
- The resolution and continuing costs of Boca Facility Warning Letter remediation and any changes to FDA compliance status.
- Customer concentration, related-party transactions with Biotest, and the effect of Biotest’s transfer of its remaining ADMA shares to the Biotest Trust.
- Compliance with the senior credit facility’s liquidity requirements and other covenants, including the conditions for accessing the additional $10.0 million tranche.